Improving Fuel Economy in Heavy-Duty Vehicles

Last fall, the National Highway Traffic Safety Administration (NHTSA) and the U.S. Environmental Protection Agency (EPA) jointly released the first federal regulations mandating improvements in fuel economy for heavy-duty commercial vehicles (HDVs). HDVs typically cover many more miles per year than the average consumer vehicle, but at very low fuel economy—making them huge consumers of oil.

In a new issue brief, “Improving Fuel Economy in Heavy Duty Vehicles,” RFF Senior Fellow Winston Harrington and Director of RFF’s Center for Energy Economics and Policy Alan Krupnick examine these new regulations, also noting issues in the accompanying regulatory impact analysis and flaws of performance-based regulations. They write that the “proposed HDV regulations are one of the most recent—and complicated—examples of a style of environmental policymaking called ‘technology-based standards.’” This means that “for each product, the agencies identify a suite of technologies available within the time frame that, if applied to a vehicle, will allow the relevant performance standards to be met.” However, manufacturers and other stakeholders have expressed concerns over the available technologies, which the authors describe in detail.

Harrington and Krupnick also write about the problem of the “energy-efficiency paradox”: although there appears to be large cost savings available from making energy-efficient investments at prevailing energy prices, few such investments are actually made. If the reason for this lack of investment is hidden costs, such as trade-offs between fuel economy and power, then these fuel savings benefits will be overestimated.

Additionally, the authors criticize the standards for only regulating the design and initial performance of vehicles rather than also addressing their use. Once the vehicles leave the showroom floor, the regulations have no further influence and hence do nothing for fuel consumption rates in existing vehicles, vehicle miles traveled, fleet mix, or fleet turnover rates. Indeed, turnover rates and fleet mix may alter in perverse ways as a result of the standards. Companies might hold onto their older vehicles longer in the face of higher costs for new vehicles and buy less regulated, if less well suited, types of vehicles because of the cost differential the standards create across trucks of different types.

To help avoid these distortions and perverse outcomes, the authors suggest that government regulations should target vehicle use either through a carbon tax or a fossil-fuel rationing scheme. Not only can these policies substitute for fuel intensity standards, they also can supplement them, as a way of mitigating the disadvantages of each.

The rebound effect from improving energy efficiency has been widely discussed—from the pages of the New York Times and New Yorker to the halls of policy and to a voluminous academic literature. It’s been known for over a century and, on the surface, is simple to understand.